Creditors warned off Cameron’s plan

Creditors owed $88 million by
Jan Cameron
’s collapsed discount chain
Retail Adventures
have been warned against her attempts to win back control of the business ahead of a crucial creditors’ meeting next month.

Ms Cameron’s private company, DSG, is trying to garner support for a deed of company arrangement (DOCA) that would return about 5¢ in the dollar to unsecured creditors and end the threat of liquidation and other legal action. In a letter to creditors last month, DSG suggested that the DOCA would deliver a better return compared to the likely return if Retail Adventures went into liquidation. DSG suggested that creditors would receive between 2.57¢ and 9.04¢ in the dollar if the company went into liquidation.

However, in a letter this week, joint administrator Vaughan Strawbridge from Deloitte warned creditors that administrators disagreed with DSG’s estimates under a liquidation scenario. Mr Strawbridge reaffirmed that the likely return to creditors if the company went into liquidation was between 22¢ and 48¢ in the dollar.

This would depend on whether the administrators were able to prove that more than half Ms Cameron’s $77 million secured debt to Retail Adventures was invalid because the company was insolvent when security was granted.

The administrators believe there is “compelling" evidence that Retail Adventures traded while insolvent and there may be a claim against directors for compensation. Any compensation for insolvent trading would depend on Ms Cameron’s financial position.

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Company Profile

Retail Adventures lost $114 million between 2010 and 2012 and had a net assets deficiency of $117 million when Ms Cameron, the sole shareholder, appointed administrators last October.

Legal action to follow liquidation

The co-founder of Kathmandu sold her half-stake in the outdoor clothing chain for $247 million almost eight years ago and used some of the proceeds to buy Retail Adventures for $85 million in 2009. She invested another $80 million over the next three years in an attempt to keep it afloat and outlaid $59 million in February to buy back the business, which trades as Crazy Clarks and Sam’s Warehouse and competes with The Reject Shop.

To achieve a return of 48¢ in the dollar under liquidation, the administrators would also have to prove that preferential payments made to suppliers before the collapse were invalid.

The administrators believe they could recover “significant" preferential payments, but concede that recovering these claims will depend on suppliers’ ability to pay and their solvency.

The administrators will issue their final report to creditors by August 19 and a second creditors’ meeting will be held by September 2.

The final report will detail investigations in relation to potential claims against directors and will recommend whether a DOCA proposal should be accepted.

The Australian Securities and Investments Commission has been advised of the administrators’ view that the company may have traded while insolvent and is waiting for the final administrators’ report.

Litigation funder IMF is planning to fund an action for insolvent trading against Retail Adventures if a liquidator is appointed.

Over the last nine months more than 80 loss-making Retail Adventures stores and two unused distribution centres have closed. The company is expected to return to profitability in 2014 after slashing rents, wages and head office costs.